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The impact of divorce on your life insurance policy – what you need to know

 The short answer is – divorce has no impact on your life insurance if you take no action. Your policy is in force and continues to be unchanged unless you do make changes. Should you make changes? Probably, yes.

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 First, consider if you want to continue with the life insurance in the event of a divorce. While the initial reaction may be ‘no’, consider carefully. Life insurance is often put in place to protect your entire family not just your spouse, so cancelling the coverage can impact everyone. So continuing the coverage may be the best option for you.

 Next, in the event of a divorce, you may want to split your policy if both of you are insured under one policy. If you have one policy with two seperate individual coverages, then splitting the policy is straightforward – it’s just a quick form that everyone signs and you both end up with your own individual policy that you pay for and control yourself (and may want to change the beneficiary, if that’s appropriate). If you do this, and keep the coverage, one option available to you is to change the beneficiary to your children, in trust, with someone else (perhaps your former spouse even) as trustee. This means any life insurance proceeds would be your children’s, not your former spouses even if your former spouse is managing the funds on their behalf.   

 You may be required to maintain life insurance in the event of a divorce by your divorce agreement. If you’re the party requiring that your former spouse have insurance, we strongly recommend that you require proof of coverage at least once a year. It’s not uncommon for people to provide proof of coverage at the time of the divorce, and then immediately cancel the coverage afterwards (more common than you perhaps think). So, require the proof of coverage to keep yourself protected.

If you’re the person who’s being required to carry coverage, then you may be asked to make the beneficiary irrevocable. Irrevocable beneficiaries mean that you (the insured) can’t change the beneficiary without their permission. Irrevocable beneficiaries are problematic, so if you can avoid this, you should do so. For example, let’s say that you keep your coverage for 10 years to satisfy your divorce agreement. In that time, you’ve become uninsurable. So now the agreement is over and you want to keep the policy but change the beneficiary to your ‘new’ spouse. If the beneficiary is irrevocable then you can’t do this without the signature of y or now-10 year divorced former spouse, and who knows how that’s going to go? If you can’t avoid this, we recommend that you have as part of the agreement that at the end of the divorce agreement that they will not unreasonably withhold the change in beneficiary at that time.  

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